From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Mon Dec 20 2004 - 12:22:33 EST
At 12:46 PM -0200 12/20/04, Francisco Paulo Cipolla wrote: >Rakesh, >Itoh´s argument seems to be the exact contrary to what you develop below. The excerpt is from Winternitz. The piece seems confused in some ways. Why do downturns first appear in Div II but are strongest in Div I? What exactly explains the turning point in the cycle? The reduction of credit? What exactly causes that? >According to him during expansions the OCC does not rise because there is >plenty of demand to keep all the outdated equipment running. Winternitz is arguing that in the boom demand may be strong enough both to effect continously technical change as embodied in accumulated capital goods and to keep running equipment that will become outdated in the recessionary phase. On empirical grounds I am skeptical of the claim that booms are usually brought to an end by the physical constraint of labor shortage and wage pressure from extensive capital accumulation. As the potential supply of labor has been increased manifold through the incorporation of India, China and Eastern Europe, one would have to subscribe to an end of the business cycle thesis. rb > It would be >nice to know the actual empirical record on that. >Paulo > >Rakesh Bhandari wrote: > >> Within the traditional transformation problem, I think Winternitz >> chose the correct invariance condition. I also found the following >> piece quite interesting, and it was behind my suggestion several >> weeks ago that the Y/K ratio as proxy for OCC is meaningless. It >> seems to me that Winternitz is saying that Y should be measured at >> the bottom of the slump while K should be measured in terms of >> historical costs of capital. Do people agree that this is what >> Winternitz's analysis implies? >> >> RB >> >> > >> >> For the upward phase of the cycle is just the time when, with >> increasing investments, accumulation of capital and concentration of >> production, technical improvements, etc., the organic composition of >> capital is growing, the tendency of the rate of profit to fall is >> developing. But here one must bear in mind that the fall in the rate >> of profit becomes effective only when market prices go down, >> corresponding to a general reduction of values. >> >> If by technical progress costs of production are reduced while prices >> of finished goods remain stable or are even rising, then evidently >> the rate of profit will rise and not fall. And this is just what >> normally happens in the upward phase of the cycle. >> >> So just when the value of commodities is falling, prices tend to >> rise. This is not a logical contradiction in the labour theory of >> value, but a real contradiction in capitalist economy. >> >> Prices are kept above values as long as demand exceeds supply. At the >> end of a depression stocks are at an ebb, the productive apparatus is >> run down, necessary replacements have not been made, there is a low >> rate of interest, reflecting an abundant supply of capital looking >> out for profitable investment. The possibilities of satisfying this >> pent-up demand are, however, limited by a productive capacity reduced >> in crisis and depression. A substantial increase in the supply of >> consumption goods will not begin before a re-equipment and expansion >> of industrial plant has been effected. >> >> This is the basis of the revival in production goods industries. >> Growing employment in the investment goods industries increases >> workers' incomes, and so the demand for consumption goods expands >> again. This is the way in which one cogwheel drives the other in the >> upward phase of the cycle. >> >> Reproduction of fixed capital is concentrated in the upward phases of >> the cycle. In crisis and depression hardly any net investments take >> place and even replacements are reduced to a minimum. Marx stresses >> the connection between this discontinuity in the reproduction of >> fixed capital and the trade cycle:
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